BUSINESS ORGANIZATIONS ECONOMICS CHAPTER 3 BUSINESS ORGANIZATIONS

FORMS OF BUSINESS ORGANIZATION SOLE PROPRIETORSHIP DEFINITION: HOW TO FORM ONE: LICENSES GENERAL BUSINESS LICENSE (SKILL) LICENSE FEES ADVANTAGES EASY TO START EASE OF MANAGEMENT (QUICK DECISION MAKING) OWNER RECEIVES ALL THE PROFITS DOES NOT PAY BUSINESS TAXES BEING YOUR OWN BOSS EASY TO CLOSE DOWN DISADVANTAGES UNLIMITED LIABILITY DIFFICULT TO RAISE OPERATING CAPITAL LIMITED SIZE AND EFFICIENCY LIMITED ENTREPRENEURIAL SKILLS—INVENTORY AND TRUSTED WORKERS HARD TO ATTRACT QUALIFIED EMPLOYEES LIMITED LIFE

BUSINESS ORGANIZATIONS CONTINUED PARTNERSHIP Definition: Types of partnerships: General partnership- Limited partnership Forming a partnership: Articles of Partnership Attorney fees Licenses and fees Advantages: Easy to start Ease of management Lack of special taxes Easier to attract start up capital than a sole proprietor Slightly larger in size Easier to attract talented employees Disadvantages: Each partner is fully responsible for the actions of each other. (Limited partners = limited liability) Limited life Conflict between partners Split the profits

BUSINESS ORGANIZATIONS CONTINUED Worldwide Web CORPORATIONS Definition: Forming a Corporation: File incorporation papers Charter # shares (stock) Stockholders dividends Corporate structure: Common stock-voting privileges for the Board of Directors. Preferred stock-nonvoting owners, first recipients of dividends. Voting by proxy Advantages: Ease of raising capital Sell more stock Issue bonds Hire professional managers to run the company Owners have limited liability Unlimited life of the company Due to their size they can attract and hire the best because they can offer the highest salaries and best benefits packages.. Disadvantages: Expensive to get a charter Owners have little say in the running of the company. Owners are double taxed Corporations are subject to much government regulation

GOVERNMENT REGULATION OF BUSINESS 1880s -- government regulation of business. “Populists”—regulated railroads. ICC. Since the end of the Civil War there has been a conflict between large corporations and government regulation.—anti-monopoly, or anti- “trusts” laws. Sherman Anti-Trust Act Great Depression caused the biggest wave of government involvement. Banking laws, working hours, minimum wages, worker’s compensation, pollution standards, clean and safe workplaces, union protections, utilities. BUSINESS DEVELOPMENT State governments today work very hard at getting new industry to locate in their state. Incentives: building infrastructure, bond offers, deferred taxes, low taxes, state financing. Why? JOBS!! BOEING

BUSINESS GROWTH AND EXPANSION There are two BASIC ways businesses grow: 1. Growth through investment: Income statement p. 69 Net Income + depreciation = cash flow Those $ may be reinvested back into the company. 2. Growth through mergers: Reasons for merging Quicker growth Efficiency (cut costs) Need to acquire new product lines Keep up with rival companies To lose its corporate identity (if the old name had a bad name)--Valujet Types of mergers Horizontal merger Vertical merger Conglomerates Diversification Multinationals International in scope

Other Business Organizations LLC—Limited Liability Company, sole proprietorship with limited liability. Non-Profit Organizations Definition: Examples: YMCA, United Way, Cooperatives Consumer Co-ops Co-op grocery stores in big cities/apartments Service Co-ops Credit Union Producer Co-ops Farm co-ops Labor, Professional and Business Organizations Labor Unions Collective Bargaining UAW Professional Associations NEA, AMA, American Bar Association Business Associations Chamber of Commerce, Better Business Bureau Government Direct Role of Government TVA, FDIC, US Postal Service Indirect Role of Government Oversee Public Utilities, Social Security, VA

INVESTING ON THE STOCK MARKET 1. Financial investments on the stock market are called equities. 2. Prices of equities are determined by: Number of shares on the market for sale. Profitability of the company. Expectations for the future 3. ACCURACY OF THE MARKET The Efficient Market Hypothesis Due to the # of market analysts, prices of stock are right…there are no bargains. Stock market therefore is not luck. Portfolio diversification, buy lots of different types of stock. Buy from internet account Use a stockbroker 4. Places where equities are sold: New York Stock Exchange (NYSE)—Wall Street—lists 2,800 companies-each of these companies must meet profitability and size requirements American Stock Exchange (AMEX)—Wall Street—750 companies Global Stock Exchanges (Tokyo, London) Over-the-Counter Markets (electronic stock marketplace)—National Association of Securities Dealers Automated Quotation NASDAQ

MEASURES OF STOCK PERFORMANCE HOW TO MAKE MONEY OFF THE STOCK MARKET MEASURES OF STOCK PERFORMANCE AND HOW TO MAKE MONEY OFF THE STOCK MARKET MEASURES OF STOCK PERFORMANCE Dow –Jones Industrial Average—publishes the average closing price of 30 stocks. Standard & Poor’s 500—uses price changes of 500 representative stocks as an indicator of the overall market performance. Bull Market—is a strong market where stock prices have been going up over a certain period of time. 1995-2000 Dow-Jones average went from 4,000-12,000. Bear Market—is a period where the market is weak for a certain period of time. 1930s and 2001-2003 (market dropped by 33%), 2008-2009 HOW TO MAKE MONEY OFF THE STOCK MARKET 1. Stock speculation—buy low and sell high. 2. Dividend value—based on the profit yield of the company. 3. Short selling– borrow stock when price is high and sell it, then buy it back when the price drops. The difference is your profit.